Friday, September 02, 2005

Gasoline Pirates

FTC Asked to Probe Gas Price Gouging

WASHINGTON — Lawmakers are demanding an investigation into gasoline prices after thousands of motorists called a government hotline to complain of price gouging.

The Energy Department reported more than 5,000 calls to its price gouging hotline Thursday from around the country, although officials emphasized there was no way to immediately determine how many of the allegations were valid.

"In Illinois, prices are reported to have shot up 50 cents per gallon overnight and the state attorney general received more than 500 reports of price gouging," nine Democratic members of the House Judiciary Committee wrote the Federal Trade Commission, asking the agency to step up its review of gas markets.

"These increases go far beyond anything justified or relating to the market disruptions caused by Hurricane Katrina," wrote Rep. John Conyers of Michigan, the committee's ranking Democrat, and the other members.

Energy Department spokesman Drew Malcolm said reports of price gouging were being turned over to the FTC.

The states with the most complaints were North Carolina, Georgia, New York, Pennsylvania, Texas, Illinois, Tennessee, New Jersey, Michigan and South Carolina.

Meanwhile, attorney's general from a number of states held a telephone strategy session to discuss the rapidly escalating fuel prices and possible investigations into gouging. Prosecution for price gouging is generally a state matter unless it involves some form of collusion or other activity in violation of federal antitrust laws.

Gasoline prices jumped 35 cents to 50 cents a gallon overnight from Wednesday to Thursday in some areas pushing to well over $3 a gallon after Hurricane Katrina shut down nine Gulf Coast refineries, disrupted gasoline pipelines to the Midwest and East and stopped 90 percent of the oil production in the Gulf of Mexico.

"If we get consumer complaints about (gasoline) prices, we'll look at those complaints to find evidence of anticompetitive conduct," said John Seesel, the FTC's associate counsel for energy issues.

But Seesel said the FTC has no jurisdiction over an individual gas station operator raising his price, no matter how high, unless there is some collusion among retailers. A number of states, however, have anti-gouging statutes. Following FTC policy, he declined to say whether any investigation were underway.

On Thursday, Attorney General Troy King of Alabama initiated a private telephone conference with a number of his colleagues from others states to discuss strategy in response to the rising gas prices and reports of huge overnight spikes by some gasoline retailers. No details about the private discussion were available.

There have been isolated cases of unusually huge price jumps, including a gas station in Georgia that briefly charged $6 a gallon when competitors ran out of gas. In Michigan, there was a price jump of nearly $1 a gallon overnight, although prices then receded, according to Rep. Fred Upton, R-Mich., who drove around his district on Thursday to gauge prices.

"Prices are averaging $3.19. It's as high as $3.58 from $2.61 on Tuesday," said Upton in a telephone interview. "My sense is the supply and demand equation does not fit a 60-cent (a gallon) increase in the last 36 hours."

Profits are up. Having been in the business years ago I can tell you that 'collusion' is the industry standard. The same gas in the ground will cost more based on their neighbors prices. It has never had anything to do with actual cost/profit formulas ... just a matter of 'what can we get for it?'

From the Department of Energy site you can research and see that -

In 2003, the price of crude oil averaged $28.50 per barrel, and crude oil accounted for about 44% of the cost of a gallon of regular grade gasoline. In comparison, the average price for crude oil in 2002 was $24.09 per barrel, and it composed 43% of the cost of a gallon of regular gasoline. (There was a small rise in crude costs between 2002 and 2003, but a 1% decrease in what that crudes impact on the price per gallon was.)

Taxes (not including county and local taxes) account for approximately 27 percent of the cost of a gallon of gasoline. (This is a constant number that has obviously decreased in it's percentage as price per gallon has increased.)

Refining costs and profits comprise about 15% of the retail price of gasoline.

Distribution, marketing and retail dealer costs and profits combined make up 14% of the cost of a gallon of gasoline.

These percentages have changed, of course. In 2005 the figures are -

Crude Oil - 55%
Distribution and Marketing - 8%
Refining - 18%
Taxes - 19%

So after Hurricane Katrina hit, what was effected overnight ?

Crude prices hadn't changed. In fact, they actually decreased that night. Seems logical since with 9 refineries off line the demand for it decreased.

Taxes didn't suddenly go up. (I actually appreciate the fact that several legislators are considering temporarily suspending the taxes. I hope they do.)

Distribution and Marketing was only effected by the fact that there was no route on I-10 for trucking, pipelines shut down along with the refineries going off-line.

Refining? Wouldn't you think that with 9 refineries not in operation that the oil companies total costs decreased?

All we get are excuses. First its crude shortage, then crude is made more available and they raise the price. Then it's the demand excuse, (experts say that demand accounts for little in the price), besides the fact that when demand decreases from 9 less refineries requiring crude, they raise the price. Then it's a gasoline shortage excuse which is B.S.

Facts are the President Bush approved the release of crude from the SOR. This more than compensates for the offshore oil platforms being off line. Also Saudi Arabia immediately increased their out put to compensate. In short, we are actually flooding the market with raw crude ... yet the price goes up.

Needs refining? Yes, but there are other refineries in this world, and it has already been planned to increase the importing of foreign gasoline. Well more than enough to compensate for the losses of the 4 refineries that produced gasoline being off-line.

Of course, this is nothing new. We have been increasing our refined gasoline imports for awhile now due to a lack of domestic refineries.

Nearly 1 million barrels per day of gasoline and its components are imported.

Everyone knows the United States relies heavily on foreign oil. But most people don't realize that the nation also increasingly needs imported gasoline -- a trend that is contributing to the recent spike in prices at the pump.

More than half of the nation's refineries have shut down since 1981, no new ones have been built, and none are planned. Moreover, the industry has kept capacity growth at remaining facilities to a minimum, despite rising demand.

"Refiners are spending all of their money just meeting all the new (environmental) regulations," Bill Greehey, the chairman and chief executive of refiner Valero Energy Corp., said in an interview yesterday. "They don't have the money for strategic projects to add to their capacity, so it's not surprising that we're short capacity."

At the same time, Greehey acknowledged that this dearth has allowed the industry to enjoy phenomenal profits these days.

L. Bruce Lanni, a senior oil analyst at A.G. Edwards in San Francisco, estimates that refining margins are more than double what they were a year ago. That has sent the stock prices of independent refiners Sunoco Inc., Tesoro Petroleum Corp. and Valero, among others, soaring.

U.S. refiners don't hide from the fact that profits are at near-record levels these days. Instead, they use this fact to dispute claims that they are withholding product from the market, arguing that there is every incentive to produce as much gasoline as possible.

The United States now imports upwards of 1 million barrels a day of gasoline during the peak summer driving season, more than twice as much as it did 20 years ago, according to government statistics.

Yet, according to some, domestic refiners aren't necessarily producing as much gasoline as they can.

"They don't want to take the risk of overproducing" and thereby cause prices to drop, said Ken Miller, a refined products analyst at the Houston oil consultancy Purvin & Gertz.

The bottom line is that everyone involved has always found ways to make more of our money. Perhaps they might increase their outputs to lower pump prices once noone can afford to drive to work. Problem is, by then it will be to late. Noone will have a job to make a paycheck to use any of it to buy their over priced gas.

And as for the 'need to RE-build refineries' excuse that will be coming ... got insurance? How about using some of those record profits to pay for it ... and build more of them ... better ... and in areas that are not prone to disasters?

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